THE NEXUS BETWEEN ARTIFICIAL INTELLIGENCE AND FDI IMPACT ON PAKISTAN’S JOB MARKET: NAVIGATING THROUGH SCHUMPETER AND REFUGEE EFFECTS

Abstract

This study examines the impact of Artificial Intelligence (AI) and Foreign Direct Investment (FDI) on Pakistan's labor market. The study used Markov Switching Model to investigate the effects of AI and FDI on the labor market in Pakistan from January 2010 to December 2024. The study focuses on the dual economic perspectives of the Refugee Effect and Schumpeter's Creative Destruction, which show the contrasting effects of AI on labor markets. The findings also show that the labor force negatively affects employment in high-unemployment regimes. The research results recommend that policies, such as the government prioritizing investment in digital infrastructure, education, and workforce upskilling, be made necessary for preparing the labor markets for an AI-driven economy.